President's Working Group Sets Out Administration Agenda on Digital Assets
Commentary by Steven Lofchie
The President's Working Group on Digital Assets ("PWG") issued a report setting out the Administration's priorities on the development of digital assets and blockchain technologies.
In the report, titled: "Strengthening American Leadership in Digital Financial Techology," the PWG identified the government's priorities as: (i) promoting the "sovereignty" of the US dollar, including through USD backed stablecoins; (ii) having US technology lead the way to improvements in payment system technology; and (iii) providing for maximum individual freedom to custody and transact without being forced to go through a financial intermediary and without being subject to constant surveillance.
On banking, the PWG called for the banking regulators to provide clarity on the activities that banks are allowed to engage in, being mindful that prohibitions and limits should be proportionate to the risks of the activities. The PWG also stated that banks should not discriminate against customers engaged in lawful activities within the crypto industry.
On the SEC/CFTC divide, the PWG called for (i) CFTC regulation of spot markets in crypto products that are not securities, (ii) the delineation of CFTC/SEC jurisdictional lines, but also for firms that are registered with either the CFTC or SEC to trade in digital assets flexibly and (iii) enabling trading in digital assets.
On taxes, the PWG stated that Treasury and the IRS should develop tax guidance that is specific to digital assets, including guidance as to taxing of activities, such as staking and mining, and generally, as to what transactions should constitute taxable events.
On AML, the PWG expects FinCEN to determine whether its existing guidance as to digital assets is appropriate or should be modified, and to consider how AML obligations should be applied to financial institutions. The PWG called for public-private co-ordination on AML issues, while stating that governments should not be engaged in surveilling US citizens engaged in lawful activities.
On a central bank digital currency ("CBDC"), the PWG opposed the establishment of a US CBDC and called for Congress to adopt legislation that would prevent the issuance of a US CBDC.
On promoting individual autonomy, the PWG supported the right of individuals to hold digital assets directly without the intermediation of a financial institution, to make payments to others without the intermediation of a financial institution, and to do so without omnipresent governmental surveillance.
Commentary
In its report, the Working Group builds on the core themes of the President's Executive Order on AI: the overarching goal is to achieve US leadership in technology (and, in this case, in payments).
One of the important "intellectual" leaps that the PWG makes is the recognition that cryptocurrencies are a new asset class, or at least a new product or technology. (Asset class may be too broad a term.) The prior Administration, and particularly the SEC, was limited in its thinking about digital assets because it attempted to force them into an existing regulatory box, generally that of being "securities," into which they did not completely fit.
It will be important for legislators, regulators, businesses and individuals to be mindful of the risks that arise from novel methods of storing value and making payments without the intermediation of a regulated financial institution:
- will there be an increase in tax evasion?
- does this facilitate money laundering?
- will individuals "misplace" self-custodied assets?
- will individuals and businesses be more vulnerable to fraud without the protections that the intermediation of a financial institution provides?
We have now moved (i) from an Administration in which avoidance of risk through Governmental control was the dominant theme (ii) to an Administration in which the dominant theme is the freeing up of US competitiveness to achieve US leadership, even if that means accepting real risks.